Federal Court knocks TPM circumvention with significant damages award

Intellectual Property and Technology Alert

In a major victory for Nintendo, the Federal Court of Canada awarded $12.7 million in damages for circumventing technological protection measures (TPMs) and copyright infringement. This decision (Nintendo of America Inc. v Jeramie Douglas King et al, 2017 FC 246) was the first substantive application of the anti-circumvention rules introduced in Canada in 2012, and will be of significance to content creators who are considering the use and enforcement of TPMs to protect copyrighted content.

TPMs include technology that provide digital locks preventing individuals from undertaking a variety of actions, such as copying, printing or making alterations, or controlling viewing. As introduced in the Copyright Act in 2012, the circumvention of access control TPMs is prohibited, even if the work was legally acquired. Moreover, the mere act of circumventing is prohibited, whether or not the party circumventing takes a step to infringe copyright after the circumvention.

Facts of Nintendo dispute

Nintendo, the famous video game company, brought an application for a declaration that the respondents, Jeramie Douglas King (King) and Go Cyber Shopping (2005) Ltd. (Go Cyber) circumvented, offered services to circumvent, and trafficked in devices that circumvent Nintendo’s TPMs contrary to s. 41.1(1)(a)-(c) of the Copyright Act (Act), and that the respondents infringed Nintendo’s copyright in certain works contrary to s. 27(2) of the Copyright Act. Go Cyber was a registered Ontario corporation that operated a retail location in Waterloo, Ontario and several commercial websites. King was the sole director and officer of Go Cyber.

The application proceeded against the corporate respondent Go Cyber since a settlement had been reached with the individual respondent King. Nintendo tendered extensive affidavit evidence from three experts. The respondents did not file any evidence or cross-examine Nintendo’s affiants.

At issue in this case was Nintendo’s handheld video game consoles Nintendo DS and 3DS and its home console Wii. The games for the DS and 3DS are sold as game cards, and for the Wii as discs. The games are played by inserting the game card or disc into the console.

The DS and 3DS consoles have three TPM measures to restrict unfettered access to Nintendo’s copyrighted works: i) the physical configuration of the game cards, which are specifically designed for use with the consoles; ii) “Header Data” (computer code) on the game cards that the console checks to confirm are present; and iii) the games and consoles contain technology to encrypt and scramble communications between each other. Similarly, the Wii console uses i) a proprietary data format designed to be used only on Wii discs; and ii) a code on the Wii discs that must be present to play the game.

Go Cyber advertised and sold through its retail store and websites devices alleged by Nintendo to circumvent Nintendo’s TPMs. In particular, Go Cyber sold “game copiers,” which were designed to be inserted into the game card slot of DS and 3DS consoles, and which mimicked a genuine game card by using copies of the Header Data and encryption/scrambling circuitry. Users then inserted memory cards containing illegally copied games into the game copiers to play the illegal games.

Go Cyber also sold “mod chips,” which Nintendo alleged circumvented the TPMs used on the Wii console. The mod chips modified the firmware on the console or disabled certain security routines, allowing users to play unauthorized games. In addition, Go Cyber offered mod chip installation services. Go Cyber promoted these activities through social media and its websites.

Federal Court’s Findings

The Federal Court found that Go Cyber had infringed copyright in Nintendo’s Header Data and had circumvented Nintendo’s various TPMs. Justice Campbell was aware that this application engaged “novel issues” as the Court had “yet to consider and apply” the TPM provisions in the Copyright Act. The Court considered the intent and motive of Parliament in adopting the TPM provisions and adopted a broad interpretation:

having regard to Parliament’s express intent to give copyright owners the power to control access to works, the principle of technological neutrality, the scheme of the Act, and the plain meaning of the definitions for TPM and “circumvent”, it is clear that access control TPMs do not need to employ any barrier to copying in order to be “effective”.

The Court found that the control measures used by Nintendo, including the physical configuration of its DS and 3DS game cards, fell within the definition of TPMs and that Go Cyber had circumvented the TPMs even by mere duplication of the game cards:

Replication is not incompatible with circumvention. A burglar who uses an illicitly copied key to avoid or bypass a lock to access a house is no less of a burglar than one who uses a lock pick.

While the Court adopted a broad interpretation to the TPM provisions, it adopted a restrictive approach to the anti-circumvention exceptions also found in the Copyright Act. In considering the interoperability exception (which permits modifications to TPM mechanisms to allow interoperability with other software or systems), the Court did not accept the “homebrew” defence asserted by Go Cyber. Go Cyber had argued that the sale of TPMs were for the purpose of making Nintendo’s game consoles interoperable with so-called “homebrew” software. In particular, the Court was convinced that there are legitimate paths for developers to develop software on the Nintendo consoles without circumventing the TPMs, and as such the interoperability defence was not available.

With respect to remedies, the Court adopted the following reasoning:

Actual infringement of copyright is not necessary for an award of statutory damages for TPM circumvention;

A work-based calculation of statutory damages is more harmonious with the wording of the Copyright Act and also reflects the economical reality of the value behind the TPM, and as such, statutory damages are available for each work to which Go Cyber’s circumvention devices provided unauthorized access;

Need for deterrence in video-game industry reinforced the need for a maximum statutory damages award of $20,000 per work.

As a result, the Court awarded damages of $11.7 million for TPM circumvention with respect to the 585 Nintendo games, as well as $60,000 for copyright infringement of the three Header Data works. The Court also awarded $1 million in punitive damages as a result of the deliberate circumvention for many years and the “strong need to deter and denounce such activities.”

The very broad interpretation of the TPM provisions and the anti-piracy concerns of the Federal Court emphasize that Canada is an ideal location to assert copyright and anti-circumvention infringement. However, it will be interesting to see how this approach to the TPM provisions will be perceived by the government when its five-year review of the Copyright Act comes up this year.